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The ‘Tragedy of the Commons’ and the Role of the Money Interest Rate

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Ecological Economic and Socio Ecological Strategies for Forest Conservation

Abstract

A key concept in ecological economics, environmental economics or green economics is the privatization of natural resources. The argument for privatization is based on the idea that only excludable goods can be efficiently allocated by the market. This chapter explains why assigning property rights does not solve the problem of the overexploitation of freely accessible natural resources and does not increase economic efficiency, but rather decreases it. In this context, it will be demonstrated that the concept of a natural dividend is really a monopolistic dividend. Lastly, the chapter demonstrates that environmental destruction originates from the obligation to grow the real economy. This obligation arises from interest as an opportunity cost of every productive investment and applies to private and public goods alike. Even though a natural resource may have a private owner, as in the case of Chile’s forests, this does not guarantee that the resource will not be overexploited.

(…) do not lend money at interest,

and do not take a bribe against the innocent.

(Psalm 15:5)

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Notes

  1. 1.

    There is much uncertainty about what this Sustainable Yield curve looks like in the real world. It is not precisely known at what rate a given population reproduces, since this depends on many unpredictable factors, for example: time, predator-prey cycles, illnesses, etc. In addition, the exact size of a population is often unknown. Moreover, habitat destruction, air and water contamination, climate change, etc. all influence the shape of the curve (Daly and Farley 2011).

  2. 2.

    The shape of the curve does not change as compared to the classic Sustainable Yield curve, since it is multiplied by a constant. However, the fish price is not necessarily a constant and depends, among other things, on the amount of fish captured. Here a constant fish price is assumed to simplify the analysis.

  3. 3.

    The distance between two curves is greatest at the point at which their slopes are equal. Given that the slope of one curve at a given point is equal to the slope of a tangent that touches the curve at that point, the two curves TI and TC have equal slopes where their tangents are parallel.

  4. 4.

    The slope of the Total Cost (TC) curve is the Marginal Cost (MC), that is, the cost of catching one more fish. The slope of the Total Income (TI) curve is the Marginal Income (MI), that is, the return from harvesting the next fish. We see that the classical rule of maximization of benefits MC = MI (e.g. Frank 2015) also applies to the exploitation of natural resources.

  5. 5.

    Here, opportunity costs are included in the Total Costs.

  6. 6.

    This is the reason why Competition Law usually prohibits collusion, unfair competition and the abuse of a dominant market position (Fuders 2009b).

  7. 7.

    It might be that the fishing company is indebted to such an extent that it does not even have enough income to decrease its debt.

  8. 8.

    Approximately 700 years ago, the “Bracteate,” a coin that was difficult to hoard and was interest free, was replaced by the “Denarius perpetuus,” the money that is used today (see: Walker 1959; Azkarraga et al. 2011: 54; Fuders and Max-Neef 2014b).

  9. 9.

    If, for example, 2,000 years ago one cent was deposited in a bank with an interest rate of 5%, this investment today would be the equivalent of approximately 707 billion planets earth of pure Fein gold (assuming that the price of gold remained constant) (Kennedy 2006: 243).

  10. 10.

    In an advertisement a big German finance group explains the compounding effect with an illustrative example. Money invested in this institution multiplied like chickens. When chickens lay eggs, chickens hatch again from these eggs, which then again lay eggs, see: Deka 2019.

  11. 11.

    A current overview is provided by (Wikipedia 2019). The fact that the money supply follows an exponential function in developed countries and developing countries alike is highlighted by Lietaer et al. (2013).

  12. 12.

    The longer a financial system functions and the greater the volume of total debt in an economy is –that is, the more saturated the debts of economic agents (homes, companies and government) become– the more difficult it is for banks to continue increasing the debt volume. In their effort to find new borrowers, banks begin to loan money even to borrowers whose solvency is questionable and at low interest rates, as happened in the U.S. until 2008 in the mortgage loan market and as continues to happen today in Chile and also in Europe with loans to State governments; these are the loans most recently backed by the “rescue fund” ESM (European Stability Mechanism). Here, we can see why financial crises occur in every country at regular intervals, and why the so-called “sub-prime” crisis and “euro crisis” are actually the same crisis: the financial system is coming closer and closer to collapse. The system crumbles when banks cannot find enough solvent borrowers who can pay for the interest that the banks must pay on their deposits. The last time this happened on a large scale was in 1929, and it will probably happen again soon. See: Fuders 2009a, 2010a, 2016, 2017; Fuders, et al. 2013; Fuders and Max-Neef 2014a, b.

  13. 13.

    This is true if the sole purpose of the business is to make money. However, entrepreneurs could, of course, also start their business because they wished to make use of their talents in order to produce products that contribute to the common good, i.e. to the quality of life of people, and not only for financial gains. If all entrepreneurs understood this we could come close to what might be called an ‘economy of neighborly love’ (Fuders 2017; Fuders and Nowak 2019). In that case, entrepreneurs would care less about interest as an opportunity cost, and it might be sufficient for them to earn enough to live off it.

  14. 14.

    Here we can also question if the so-called “Keynesian multiplier” really exists. In the view of post-Keynesian economics, the government can attenuate economic cycles via anticyclical spending and saving. That is, in times of economic boom and high tax incomes the government saves up money in funds that later can be spent if the economy drives into a recession to attenuate the economic downturn. However, money that is saved on bank accounts will keep on circulating in the economy via credits. Does it make a difference if the money is put into circulation by the government or the banking system?

  15. 15.

    This is an excellent definition. However, many textbooks state that the money interest rate was a “prime to abstain from consumption” (e.g. Süchting 1995: 437; Engelkamp and Sell 2005: 166). However, money is only a voucher, or accounting unit to facilitate barter. Money is not a real good and does not have any intrinsic value, from which consumption one might abstain. Only if the voucher is interchanged for a real good, such as a car, and the owner decides to lend it to someone instead of using it himself, only then he abstains from consumption. And only then it makes “sense” (Steiner 1979: 50) and it seems to be justified to charge a rent (on the moral-ethic aspects of interest see Fuders 2010b, 2017).

  16. 16.

    Interestingly, for Muslims the Quran prohibits this equalization of productive gains with interest for lending money, cf. Surah 2.275. The Holy Bible also prohibits the money interest rate (e.g. Deuteronomy 23,19; 23,20–21; 24,10; Exodus 22,25; Leviticus 25,35–37; Ezekiel 18,8; 18,13; 22,12; Psalm 15,5; 112, 5; Proverbs 28,8; Luke 6,30; 6,35; 1 Timothy 6, 9; see also Fuders 2017).

  17. 17.

    The NPV of a future earning is the value that would have to be deposited in a bank today, at the current interest rate, in order for the deposit to reach the expected future value of the earning.

  18. 18.

    Human needs in the Human-Scale-Development-Approach are seen as ontological, i.e. stemming from the condition of being human and can be characterized as few, finite, classifiable and do not vary through all human cultures and across historical time periods, in contrast to the notion of what economics define as “wants”, which are infinite and insatiable. What do change over time and between cultures are the strategies by which these needs are satisfied. An index that measures the subjective perception of the satisfaction of fundamental human needs is the “Human Scale Development Index” (Fuders et al. 2016).

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  1. Economics Institute, Faculty of Economics and Administration, Universidad Austral de Chile, Valdivia, Chile

    Felix Fuders

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  1. Economics Institute, Faculty of Economics and Administration, Universidad Austral de Chile, Valdivia, Chile

    Felix Fuders

  2. Institute of Forests and Society, Universidad Austral de Chile, Valdivia, Chile

    Pablo J. Donoso

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Fuders, F. (2020). The ‘Tragedy of the Commons’ and the Role of the Money Interest Rate. In: Fuders, F., Donoso, P. (eds) Ecological Economic and Socio Ecological Strategies for Forest Conservation. Springer, Cham. https://doi.org/10.1007/978-3-030-35379-7_2

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